Overview
What We’re Watching Today is 1,408 words and a 9-minute read.
Global: Risks of growing Arctic cooperation between China and Russia
The US Department of Defense released a new strategy for the Arctic region, identifying increasing cooperation between Russia and China as an issue of concern for regional stability.
Our Take: The race to control the Arctic is heating up, literally, as global warming is opening the prospects for new shipping routes through the receding ice packs. Establishing a predominance in the region will have political, military and economic implications. Russia has been reopening Soviet-era military sites in the Arctic, building force projection capabilities in the region. Military assets could be used to create a denied area, blocking maritime freedom of access. Russia would also be able to enforce self-claimed extended continental shelf, imposing exclusive rights to the vast seabed mineral wealth. The release of the US military strategy clearly places the Arctic region as critical to US national defense and spells out how the Defense Department plans to respond to challenges there: enhancing US capabilities, greater engagement with allies and partners and exercising US presence in the Arctic.
Read More: Reuters, War on the Rocks, US Department of Defense
Europe: Russian threatens legal action over EU plans to leverage profits from frozen Russian assets
The Russian government is warning the EU that it will take legal action if interest on frozen Russian assets is appropriated to fund military aid to Ukraine.
Our Take: The Russian government’s reaction to the planned August transfer of the first tranche of 1.4 billion euros to fund the European Peace Facility to underwrite EU arms deliveries to Ukraine is not unanticipated, but still poses some legal and political risks. The EU will not be seizing Russian frozen assets (as initially advocated by the US), but leveraging the windfall profits they generate. Euroclear anticipated legal challenges and has withheld a portion of the profits in anticipation of covering legal challenges. But the EU risks retaliation by Russia, most likely in the form of confiscating of assets held by European companies. The risk is not isolated to Europe. The G7 plans to back syndicated loans to unlock an additional $50 billion in financial assistance to Ukraine, which will be securitized by the windfall profits from the frozen assets, risking a wider array of Russian retaliation.
Read More: Reuters, The Lawfare Institute, Bruegel
Middle East: Chinese unity deal for Palestinian factions symbolic, unlikely to bear fruit
Rival Palestinian groups Fatah and Hamas signed a unity agreement in Beijing, pledging to present a united front during ceasefire negotiations.
Our Take: The announcement is a bid by the Palestinian parties to present a united front in ongoing ceasefire negotiations with Israel, as well as an attempt by China to establish itself as an international mediator as the US leads the charge on Israel-Hamas negotiations. Nonetheless, expectations for this new alignment are low: Israel has rejected any peace deal that gives a governing role to Hamas or Fatah, which controls the Palestinian Authority, and Hamas and Fatah have failed to maintain several joint statements of unity since the groups clashed in 2007.
Read More: New York Times [paywall], Washington Post [paywall]
Asia-Pacific: India’s finance minister backs more Chinese direct investment
India’s Finance Minister Nirmala Sitharaman backed her economic advisor’s suggestion to allow more Chinese investment into the country, after flows were disrupted by New Delhi’s increasingly strained ties with Beijing since 2020.
Our Take: Despite vowing to maintain curbs on Chinese investments until an agreement is reached between New Delhi and Beijing on their border conflict, India’s net FDI inflow dropped to a 17-year low in 2023-2024, spelling concerns. Officials believe greater investment from China could boost Indian exports to Western economies and help keep New Delhi’s growing trade deficit with Beijing in check, though rising trade tensions between China and the West add a layer of uncertainty to this aim. Whether the statement reflects a substantive improvement in Sino-Indian relations or simple pragmatism by New Delhi, it is clear that India is continuing to steer a precise balancing act between the United States and its adversaries, rejecting full alignment with Washington’s grand strategy.
Read More: Reuters, South China Morning Post [paywall]
Trade and Compliance: US sanctions China-based network for aiding North Korea
The United States imposed sanctions on Wednesday on a China-based network for helping North Korea develop its ballistic missile and space programs, according to the US Treasury Department.
Our Take: The Treasury Department’s statement lists six individuals and five companies in the so-called Shi Qianpei network that it claims was involved in procuring items to support the programs in violations of multiple United Nations Security Council resolutions. North Korea relies on foreign-sourced materials and components for its weapons of mass destruction programs, hiding the end-use from manufacturers. The move signifies a greater crackdown on Chinese firms’ role in the process, yet how Beijing will choose to respond is currently uncertain.
Read More: Reuters, US Department of the Treasury
Climate Change: Global coal demand remains flat; China and India’s electricity demand fueled by coal offsets global transition
In an update on the coal market, the International Energy Agency assessed that global coal demand will remain largely flat this year and next, forecasting the rapid expansion of solar and wind will supply growing demand for electricity in some major economies.
Our Take: The IEA report reflects the difficulty of devising policies to guide a smooth energy transition away from carbon-intensive coal to greener forms of energy. The IEA’s Net Zero Emissions by 2050 Scenario envisions that all unabated coal generation will end by 2040. The world is not on track to meet this condition because of divergent trends. Coal power generation in Europe and the US is falling, significantly. However, strong electricity demand China and India, the two largest coal consumers globally, resulted in increased use of coal to meet the demand. But growing electricity demand is not unique to Asia. In the US and Europe, switching from coal to natural gas has slowed, also threatening to slow the global trend. Competitively prices natural gas and utility-scale wind and solar electricity generation will need to be more abundant to tip the economic advantages away from coal burning.
Read More: Reuters, International Energy Agency, S&P Global
ESG: Airlines call for green fuel support
Airline executives called for governments to mimic the UK’s recent green jet fuel initiative, which includes a price guarantee.
Our Take: Leaders issued the call at the Farnborough Air Show for international governments to follow in the footsteps of the UK’s new government, which last week announced plans to introduce a price guarantee for sustainable aviation fuel (SAF) to incentivize producers to open more plants and build infrastructure to ramp up the fuel's production. Industry experts warned that green aviation fuel – which accounts for just .02% of the market – will need significant institutional support to get to 65% by 2050 so that the aviation industry can hit its net-zero target.
Read More: Reuters, World Economic Forum
